The indigenisation route

In doing the demarcation of who does what including overlaps, a road map is essential to be clear what technologies we need in what time frame, particularly to bridge the asymmetry vis-à-vis our adversaries, particularly China.

In a recent seminar on ‘Self Reliance in Land Systems Through Indigenisation – The Future Perspective’ organised by a primary think tank in New Delhi, the chief guest mooted the idea that the seminar must provide a platform to the defence industry to project their capabilities and gain insight into the policies and procedures on indigenisation as well as provide an opportunity to both the Army and the industry to build an enduring partnership which will be instrumental in addressing the issues related to indigenisation of military equipment.

The seminar showed there is no dearth of compelling thoughts and ideas which came up during the technical sessions that gave a positive direction to the industry houses in planning their future investments and the policy-makers in framing policy guidelines to keep all the stakeholders on the same page and focused towards the common goal. What is significant to note is that this was not the first such seminar on the issue that many of this type have been held over the years and yet we continue to import over 80 per cent of our defence needs.

This despite crores of rupees expended on the Defence Research and Development Organisation (DRDO) and the Defence Public Sector Undertakings (DPSUs) simply because our R&D is not focused, our policies and procedures are not streamlined to drive and fast-track indigenisation and are poorly executed, we have not optimised public-private partnership including small and medium enterprises (SMEs) and lack organisational structures to do so, we have not leveraged ICT and modern manufacturing processes to accelerate indigenisation, we do not have a road map to leapfrog technology, we do not capitalise upon innovativeness private industry and the academia, and we continue to re-invent the wheel, plus accredited reasons.

Another overbearing reason is stagnation in the pattern of functioning that has set in over the past decade, which resists change for many reasons, corruption included indicated by Haschke turning approval in the AugustaWestland Helicopter scam – a first time exposé that would perhaps help heal the system. The good news is that with the change of government in the offing, the new setup will likely provide the much delayed boost to indigenisation.

Why 67 years after independence, DRDO officials admit they only have “pockets of excellence” is no mystery. When Defence Minister A.K. Antony ordered the CAG to do a secret audit of DRDO last year, the highlights of the report were gloomy to say the least, major ones being: one, DRDO has been developing equipment which is either substandard or have extended deadlines and additional budgets; two, many projects have no government approval – only 10 per cent projects have the Ministry of Defence (MoD) clearance; three, corruption and nepotism exists in the upper echelons; four, there is an exodus of qualified scientists. DRDO challenged the findings but MoD took cognisance and ordered review of the approval processes.

Additionally, the Controller General Defence Accounts (CGDA) audit findings raise serious questions on the DRDO capability despite annual budget of ` 10,610 crore (2013-14).

The audit notes that in several cases, DRDO bought equipment from other companies after spending crores on R&D. For instance, the CGDA found that after spending two years and ` 29.96 crore to develop satellite signal monitoring, DRDO ultimately bought the same from a public sector undertaking on a single tender basis for ` 24.50 crore in April 2011.

When commercial off-the-shelf (COTS) technologies are available, DRDO still spends crores of rupee on reinventing the wheel. For example, DRDO spent

` 6.85 crore to develop explosive detectors, which were offered to the army for ` 30 lakh each while COTS versions were available for ` 9.8 lakh apiece including repair and maintenance. The CGDA report criticised the ‘joint development’ technology initiative of DRDO, calling it “import of older, foreign technology under the disguise of joint development.” The CGDA accused DRDO of promoting foreign firms without the mandatory formal ToT agreement. In an earlier CAG report in 2011-12, DRDO was found spending crores on random research projects and out of 55 high priority projects based on user-requirements, only 13 had gone into production.

A modular bridge being developed for the army was shelved in 2010, after eight years of experiments and spending ` 21.46 crore. Six months later, ` 13.25 crore was sanctioned for another modular bridge project. The initiative to produce next generation laser weapons was closed down within a month after equipment was procured. So forth and so on the story remains the same but it also indicates lack of

focus and monitoring by the government. The military as the user oft has to put up with sub-standard products despite time delays. Many products are not anywhere close to their foreign counterparts, for example, night vision equipment despite import of infrared (IR) tubes. The fact that the military and the Central Armed Police Force (CAPF) too have to import small arms is a matter of shame.

So where do we go from here? The first requirement is to reorganise the MoD and in this case the Department of Defence Production (DoPD). This is necessary to break the time wrap in which the system is caught up in, plus the corruption. This was explicitly explained by L&T CEO Manibhai Naik in a letter to Prime Minister Manmohan Singh in 2011 saying, “Defence Production (MoD) Joint Secretaries and Secretaries of Defence Ministry are on the Boards of all PSUs – sickest of sick units you can think of who cannot take out one conventional submarine in 15 years now with the result that the gap is widening between us and China and bulk of the time we resort to imports out of no choice. The defence industry which could have really flowered around very high technological development and taken India to the next and next level of technological achievement and excellence is not happening.“There is merit in what he says. Definitely induction of serving military officers, especially as Defence Secretary, Secretary Defence Production and Secretary Defence (Finance) is needed to break the current logjam.

Next is the need for a thorough review of the functioning and capabilities of the DRDO, DPSUs and Ordnance Factories (OFs), particularly what they should develop individually, what should be the JVs and what defence products should be undertaken exclusively through indigenisation, which in turn would permit cutting down some of these flabby government organisations running contrary to worthwhile costs benefit. In doing the demarcation of who does what including overlaps, a roadmap is essential to be clear what technologies we need in what time frame, particularly to bridge the asymmetry vis-à-vis our adversaries, particularly China. These would include smart, stealth and nanotechnologies, directed energy weapons (DEWs), strategic air and theatre missile defence, hypersonic platforms, and technologies for space and cyberspace combat, radiation combat, robotic combat, besides improved C4I2SR and NCW capabilities.

Considering the state of our R&D and advances worldwide, JVs are actually the route to leapfrog technology, aside from reverse engineering, latter being freely practised by countries like China, Pakistan and North Korea. In this context defence offsets too play an important part. Opening of a Facilitation Cell by the Defence Offsets Management Wing (DOMW) in a civil area for easy access has been a good step. However, it needs to be remembered that the DOMW was preceded by the Defence Offset Facilitation Agency (DOFA) that was established in 2006 but had to be shut down as it could not deliver upon what was expected. At the same time, foreign companies which invest considerably in R&D may not be comfortable in sharing those high-end critical technologies with India at a multiplier value level. There are no specific incentives to share high-end technologies and foreign OEMs can get the benefit of multipliers by sharing comparatively non-critical technologies for the same multiplier value.

Perhaps there is need to provide higher multiplier values to extremely critical technologies required by DRDO in order to attract foreign vendors. It may be helpful if MoD assigns multiplier values on a case to case basis, based on criticality, importance, requirement and urgency; DOMW should ensure there is no ambiguity in the process including through a fully automated system that will monitor, account for, and audit offsets in real time, which should be preferably web based; and, DOMW must provide accurate and detailed information about the status of offset contracts and the technology/capability received from each contract to help stake- holders undertake cost-benefit analysis, facilitating mid-course corrections.

Then is the procurement process, complicated beyond imagination. Trefor Moss quoting the Army Chief wrote in The Diplomat on March 25, 2012, saying, “The procurement game is a version of snakes and ladders where there is no ladder but only snakes, and if the snakes bite you somewhere, the whole thing comes back to zero.” The hurdles in absorbing foreign technology are too many even if the foreign vendor is eager for the JV and ToT. Take the case of the US, where US technology and exports control areas are being looked at as in the case of closest allies of US; for the US system to operate on a timescale consistent with the needs of India.

However, it is equally important for us to introspect especially since we failed to attract the foreign direct investment (FDI) in defence despite hiking the limit from 26 to 49 per cent. For that matter, little attention has been given to why our own private industry does not find the defence sector attractive enough or rather their participation is far less than desired. For a JV with a US firm, issue of RFI with usual response time of three months for ‘Buy and Make’ projects would require concerned US firm to obtain permission from the US Government every time for export. If the equipment or system is itself a JV within the US, then each of these firms too have to obtain US Government approval for export of specific technology; something that may take up to 12 months or more. Additionally, before the JV is established with the Indian firm, what items and in what specific quantities have to be identified and applied to the US Government by the Government of India (GoI) since the said items can only come through the foreign millitary sales (FMS) route on a government-to-government basis. On balance, if all these complications are not addressed, Indo-US JVs for a ‘Buy and Make’ project will remain misnomer.

Despite all the annual hoopla of simplifying the Defence procurement Procedure (DPP), the changes have been largely cosmetic, largely due to vested interests. Otherwise there is no reason why review of the DPP is done in-house by MoD. The fact that we have not been able to sufficiently attract our own private industry into the defence sector should lead us to focus why this is happening. The fact is that there are just too many disincentives: first, there is little monetary incentive for R&D; second, there is no change to the nocost-no-commitment trial system; third, no assurance of subsequent phase even when undertaking current phase; fourth, complicated, costly and time-consuming tendering, custom clearances (as applicable), multiple demonstrations in varied terrain and places, etc; fifth, corruption – bribes at various levels; sixth, despite costs, time and efforts, possibility of termination and blacklisting even through anonymous letter; seventh, lack of transparency and the like. Logically, review of the DPP should be done by a panel fully integrating the private industry and the stakeholders or still better, by an independent body represented by all concerned. To this end, establishment of such an independent and all encompassing expert body can solve the complicated jigsaw of not only the DPP, but establishment of JVs, optimising defence offsets, road map and leapfrogging of technology, plus recommending division of responsibilities between the defence industrial comlex; DRDO, DPSUs, OFs and private industry.

For indigenisation to succeed, we must provide a level-playing field to the private industry and optimise their potential as well. We cannot aspire to be a global or regional power without being substantively self-reliant in defence production. Our defence procurement must aim to transform our defence-industrial base to become an active hub for state-of-the-art defence exports besides making India self-reliant in defence needs on an upward graduating scale. The DRDO must concentrate its efforts on developing critical cuttingedge technologies that strategic partners are unlikely to share.